Global M&A 1Q 2016 preliminary figures released

BY Fraser Tennant

Developments and trends in the global M&A space for the first quarter of 2016 are at the heart of a preliminary report published this week by Dealogic.

In ‘Global M&A Review: First Quarter 2016’, Dealogic reveals that the total M&A value seen in 1Q 2016 was $701.5bn – a 25 percent year-on-year drop on the previous three quarters which saw $1 trillion volume.

In terms of the key regional headline data, the Dealogic review of global M&A in 1Q 2016 reports that US targeted M&A volume was $248.2bn (accounting for 36 percent of global M&A volume) – down 40 percent year-on-year and the lowest 1Q share since the 30 percent seen in 2012. Turning to Europe, the Middle East and Africa (EMEA), targeted M&A volume was $217.9bn – 31 percent of global M&A and the highest quarterly share since 2Q 2013.

Cross-border activity accounted for a quarterly record high of 43 percent share of global M&A, some $302.6bn, falling just short of the record $314.6bn seen in 1Q 2015. China outbound M&A volume was $104.3bn, again, just short of the annual record high of $106.4bn set last year.

Leading the M&A advisor rankings is Goldman Sachs with transactions totalling £214.2bn, followed by JPMorgan on $153.1bn and UBS with $98.7bn.

Technology was the top sector with a total of $100.3bn, the second highest 1Q volume on record behind 1Q 2000 ($190.8bn). Conversely, the healthcare sector saw the biggest drop among the top five sectors in 1Q M&A volume, down 56 percent year-on-year to $58.7bn. 

The top 10 announced M&A transactions in the quarter were led by China National Chemical Corp’s  $48bn acquisition of Syngenta in February. This was the largest agribusiness deal and China outbound M&A deal on record. A distant second on the list is the $16.6bn acquisition of Tyco International by Johnson Controls, the largest telecom deal in the US since the Time Warner/Charter Communications transaction in May 2015.

The final 1Q 2016 M&A figures are scheduled to be released by Dealogic in early April.

Report: Global M&A Review - First Quarter 2016

Landmark year in global renewable energy investment

BY Richard Summerfield

Global investment in renewable energy reached record levels in 2015, according to a new report from the United Nations.

Renewable energy investment climbed to $286bn last year, a 3 percent increase on the previous record set in 2011, and more than double the $130bn invested in coal and gas power stations over the same period.

The report – Global Trends in Renewable Energy Investment 2016 – is the tenth edition of the UN Environment Program’s annual publication and has been launched by the Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance and Bloomberg New Energy Finance (BNEF).

“Global investment in renewables capacity hit a new record in 2015, far outpacing that in fossil fuel generating capacity despite falling oil, gas and coal prices,” said Michael Liebreich, chairman of the advisory board at BNEF. “It has broadened out to a wider and wider array of developing countries, helped by sharply reduced costs and by the benefits of local power production over reliance on imported commodities.”

One of the most notable features of the of the UN backed report is that while global investment in solar, wind and other renewable sources of energy has climbed considerably, for the first time ever the developing world accounted for the majority of investments. According to UNEP’s data, renewable investment in developing countries climbed 19 percent to $156bn in 2015, $103bn of which was invested in China alone. “Renewables are becoming ever more central to our low-carbon lifestyles, and the record-setting investments in 2015 are further proof of this trend,” said UNEP Executive Director Achim Steiner.

However, the growth in developing economy investment contrasts with a fall in similar investment in the developed world. Though US investments rose 19 percent to $44bn, investments in developed countries fell 8 percent to $130bn. Investment in Europe was down 21 percent, from $62bn in 2014 to $48.8bn in 2015, the continent’s lowest figure for nine years, despite record investments in offshore wind projects. Japanese investment in renewable energy was much the same as the previous year, at $36.2bn.

There has been good progress made in renewable energy investment and it is clear that some structural changes to the energy space are underway; yet there is still a great deal of work to be done. Renewables still only accounted for one-tenth of global power generation, the majority of which comes from coal and natural gas.

Report: Global Trends in Renewable Energy Investment 2016

Global IPO down in Q1 – EY

BY Richard Summerfield

Global initial public offering activity (IPO) suffered a significant decline during the first quarter of 2016, according to a new report from EY.

The firm’s quarterly report – EY Global IPO Trends: 2016 1Q – noted that 167 deals were completed, raising just $12.1bn. That makes it the poorest first quarter recorded since 2009. By comparison, 1Q 2015 saw 39 percent more volume and 70 percent more capital raised.

In the US, total capital raised declined 88 percent compared to the same period in 2015, falling to $753m. Deal numbers fell by 71 percent, with just 10 IPOs recorded, all of which came from the healthcare sector.

Though EY notes that the first quarter of the year is often the weakest for IPO activity, and there was always likely to be a period of depressed activity following several years of robust dealflow, many companies appear to be approaching the market more carefully than they have in years. The reason for this caution appears to be a number of issues permeating the global economy. Organisations have been spooked by fears of a global economic slowdown, increased volatility, falling oil prices and equity market turbulence. IPO activity has been weak in major markets including the Americas, the Asia Pacific region and EMEA.

The technology space, normally one of the most active sectors for US IPOs, was absent. Companies in Silicon Valley are seemingly content to wait out the market, delaying their IPOs until the market picks up.

Jackie Kelley, EY Americas IPO Leader, says: “With increased volatility in the markets and the uncertainty surrounding oil prices, interest rates and US elections, we expected a stop-start year for IPO activities. Despite a slower than usual start in the first quarter, we’re seeing signs that the IPO window will finally open. The pipeline of offerings ready to price is building up and IPOs are outperforming the S&P 500 this quarter. As the markets recover and confidence steadies, we are optimistic that IPO levels will start to trend closer to historic norms.”

Moving forward EY is confident that the slowdown in IPO activity will be short term. Once the economic slowdown, falling oil prices and equity markets stabilise, there should be a flotilla of companies ready to act on their IPO plans.

Report: EY Global IPO Trends: 2016 1Q

P&U sector rethinks business models to tackle cyber security challenges

BY Fraser Tennant

Understanding the cyber security challenges facing the power and utilities (P&U) sector and improving how businesses respond to them is the overarching theme of a new EY report published this week.

In EY’s ‘Creating trust in the digital world’ global information survey 2015, 1755 respondents from global P&U organisations provide insight into the most important cyber security issues facing the sector today – a sector currently undergoing major transformation due to the introduction of smart meters and data networks across the digital energy value chain.

Moreover, the onset of this digital energy value chain, what EY describes as the “attack surface” of P&U organisations, is expanding considerably, as is the sophistication and persistence of the cyber attacks being launched by cyber criminals.

Highlighting the main concerns of the P&U sector, the EY report reveals that 19 percent of P&U responders admit that they do not have an information security strategy; 46 percent point to a lack of executive awareness or support as a major obstacle to dealing with threats to cyber security; and 55 percent confirm that their organisation does not have a dedicated security operations centre (SOC).

In terms of how P&U organisations should manage a cyber attack, the report recommends that they first identify their key risk management principles and apply them to the cyber risk issue. Fundamentally, this means knowing their critical assets; making cyber risk more tangible; aligning cyber risk with existing risk frameworks; making cyber risk relevant to the business; and embedding risk appetite within investment decisions.   

Furthermore, says EY, organisations should adopt a three-stage improvement process: (i) ‘Activate’ (establishing and improving cyber security foundations); (ii) ‘Adapt’ (adapting cyber security to changing requirements); and (iii) ‘Anticipate’ (predicting what is coming to be better prepared).

“P&U companies are rethinking their business models by being more innovative and offering a richer customer and employee experience through a variety of channels”, states the report. “However, there are significant cyber threats, and organisations need to recognise and understand the current challenges to get ahead of the cyber criminals.”

Although the EY report makes it clear that the P&U organisations are indeed making significant progress as far as tightening up their cyber security, the overriding message is that there remains considerable room for improvement across the sector.

Report: Global information survey 2015: creating trust in the digital world

Global investment in FinTech to top $150bn within 5 years claims new report

BY Fraser Tennant

Global investment in FinTech is set to top $150bn over the next five years, putting one in four financial services (FS) companies potentially at risk, according to a report published this week by PwC.

The report, ‘Blurred Lines: How FinTech is shaping Financial Services’, is based on a survey of 544 respondents across 46 countries and examines the development of new financial services sector technologies and their potential impact on the FS market.

Pointedly, 83 percent of survey respondents said they felt at risk of losing some of their business to standalone FinTech firms, with 67 percent citing pressure on margins as being the top threat to business, followed by loss of market share (59 percent).

In terms of the relationship between FS firms and FinTech companies, while the report notes that joint partnerships are “the most common way” in which collaboration takes place, it also makes clear that there are particular challenges to overcome. Chief among these are IT security, regulatory uncertainty and differences in business models.

“Given how fast technology is changing and lines are blurring, no business can afford to rest on its laurels,” said Steve Davies, EMEA FinTech leader at PwC. “As competition hots up, the result will be a reduction in margins and a loss of market share for traditional financial institutions. Those who do not act now are at risk of falling behind as FinTech changes the industry from the outside. Incumbents cannot afford to ignore this trend. Nevertheless, our survey shows that 25 percent of firms currently have no interaction at all with FinTech companies.”

The PwC report also identifies the distributed ledger technology Blockchain as being the next evolution in the FinTech story, with huge cost savings and improvements in transparency being real possibilities – a “once-in-a-lifetime opportunity”, according to Mr Davies. Testament to this belief is PwC’s identification of more than 700 companies that have recently entered this space.

Mr Davies concluded: “In the past, financial services companies have provided invaluable services to clients by acting as intermediaries in the system. Their functions are now increasingly being usurped by technology-driven business models. Before these traditional intermediary roles become obsolete, firms need to wake up to the once in a generation opportunity provided by this changing financial landscape.”

Report: Blurred Lines: How FinTech is shaping Financial Services